House prices could fall by a quarter from current values if predictions from the Centre for Economics and Business Research prove correct. Respected analysts CEBR expect prices to fall 32% from their 2007 levels by the first quarter of next year - providing the Government's rescue schemes for the banks work. If they fail, house prices will drop 40% from their peak, say the economists.
Key to the door
The key to a recovery in house prices is improving the mortgage lending market, believes CEBR. Unless more mortgage lending is available and on easier terms for borrowers, then it will be difficult to stimulate the property market.
Without additional lending in the market, house prices will not only fall another 25% from current levels, but they will stagnate through 2010 and 2011 and will not lift above 2003 prices until 2013, says CEBR.
There is some hope, though, says report author Benjamin Williamson. "The glimmer of light at the end of the tunnel for the beleaguered housing market is that prices and interest rates are now at levels whereby any improvement in lending is likely to lead to substantially increased activity and, at the very least, a bottoming out in house prices," he suggests.
Weak economy - weak prices
"However, if lending remains close to current very low levels, the spectre of the biggest annual drop in UK GDP since post-war demobilisation in 2009, with concomitant rises in unemployment and collapsing confidence, will likely lead to an acceleration in house price falls."
A picture of a possible recovery in house prices can be gleaned - at least by the optimist - from the latest figures from the Nationwide Building Society and the Land Registry.
Nationwide's house price index for January shows a monthly average fall of a mere 1.3%, compared to a drop of 2.5% in December. That brings down average house prices to just over £150,000, against a peak of £186,000 in October 2007.
Low activity
Despite the appearance of a levelling-off of house prices, Nationwide cautioned against reading too much into a market where activity remains very low. "Mortgage approvals for house purchase fell to a record low of 27,000 in November and partial figures for December suggest there has only been a small improvement since then," says Nationwide's senior economist, Martin Gahbauer.
"House purchase approvals have historically been a good lead indicator of house price movements and we would not expect to see a stabilisation of property prices until approvals recover significantly from current levels."
Gahbauer suggests that while there has been a strong recovery in new buyer enquiries in recent months, this has not been translated into an increase in house purchase approvals. This may, he believes, be because potential buyers are being more patient in current market conditions and are looking to buy in the longer term. Alternatively, the shortage of approvals may reflect the reluctance or inability of mortgage lenders to authorise home loans given the continuing lack of liquidity in the market.
Regional differences
But there is also clear evidence of the extent of variation in house market conditions across the country. The Land Registry's latest index of house prices in England and Wales - compiled from all housing transactions and therefore the most accurate guide to what is happening - showed large differences in pricing trends between and within regions.
In the month of December, average house prices were marginally below £159,000, a monthly fall of 2% from November and a 13.5% drop from December 2007. The largest annual fall
over the year in a region was 15.6% in the South East, while the largest monthly fall was 3.6%, recorded in the West Midlands.
Annual house price reductions had previously been steepest in the East of England, but this decline has levelled-off - with a mere 0.5% fall in December. Prices were stable for the month in the North East.
Popular Glamorgan
House prices actually rose in December in Wales by 1.7% - though they still fell by 8.6% over the course of a year. The Vale of Glamorgan showed the highest price increase of any council area in England or Wales, with a jump in prices of 2.4%.
Yet nearby Merthyr Tydfil showed the biggest monthly fall at 9.2% and the largest annual fall of 21.1%. Clearly, location remains of extreme importance in making a sale and achieving a good price. Average prices in the Vale of Glamorgan are now £171,680, while those in Merthyr Tydfil are a mere £68,521.
The most significant statistic in the Land Registry's index was probably the number of transactions conducted. While this averaged over 110,000 per month when the market peaked in mid to late 2007, this fell to less than 45,000 a month in the third quarter of last year. It looks likely to be some time before transaction levels, let alone prices, truly recover.